APQC: What is the cost of the finance function?

Writing in CFO Magazine, our friend Mary C. Driscoll of APQC takes a look at some of the results of APQC’s Open Standards Benchmarking assessment. The results are enlightening and confirm what we have seen with many of our clients over the past years.

The difference between the top performing firms and the bottom performers, in terms of percentage of revenue spent on the finance function, is surprisingly large. In the services industry, for example, the top performing organizations spend 0.57% of revenue on the finance function while the bottom performers spend a whopping 3.96%. Think for a second about the implication of an additional 3% of revenue dropping straight to the bottom line. Driscoll lays the blame for the disparity squarely on a lack of leadership

The disparity stems from the refusal by some companies to evolve with the times or to respond to new demands arising from rapid organizational growth….

…In some organizations, the killer factor is a lack of a consistent vision for continuous improvement of financial management processes. Unless company leaders realize that financial management processes are crucial to the smooth running of the enterprise, meaningful improvements that could come to fruition never will.

But even this understates the lost opportunity cost. When a finance team is inefficient, or focused purely on reducing costs, they miss the opportunity to become a proactive member of the management team adding value through analysis and strategically looking forward.

The winning CFOs have proven to be those who saw and responded to the need for finance to be agile. They saw the need to help the organization bend and stretch through mergers, acquisitions, divestitures, and new markets—and to create capital allocation and process innovation strategies to satisfy customers and shareholders.

Rather than simply processing transactions at a low cost, these leaders positioned finance as a competent analytics partner for organizational leaders. These CFOs led the evolution of finance from balance sheet management to strategic leadership, and along the way, they created efficient finance teams that really do accomplish more work for less. What are the others waiting for?